Do these people look like they're having a good time on this roller-coaster ride? Do you ever get the feeling that since this new year has begun, it's been like the ride from hell in the stock market? Tens of millions of investors have a sinking feeling in the pit of their stomachs, witnessing the loss of their hard earned savings jolted from their wallets.
Looking at these charts of the Dow and the S&P 500 is giving investors the same type of feeling as the nausea and utter fear experienced by the folks in that first picture.
^DJI data by YCharts
Dow year to date
^SPX data by YCharts
S&P 500 year to date
The utter fear and confusion being expressed by investors on either side of the trade is being reflected in the almost daily moves of 100 to 400 points in one day's trading session, virtually every day since the year began. One step forward seems to lead to two or three steps back.
From the recent Dow high of 18,351, the market has gone into correction mode and came awful close to the definition of a bear market. At its recent low of 15,350, the Dow had given up 3,000 points, or 16.35%. Getting from here back to its recent high (getting even for those who bought the S&P 500 index tracking mutual funds or ETFs) will require a leap of almost 20%, the mirror opposite of a bear market.
Early Wednesday, the Dow was falling another 100 points. By comparison, the S&P 500 was down a much more severe 1.6%. In a rare (this year) decoupling from the oil market turmoil, the price of oil was up 6.5%, while the equities markets were selling down hard, breaking the correlation that has been so sticky for many months.
The S&P finished the day up .5% and the Dow closed up 1.13%. Another frenetic day in the oil pits saw oil closing 9.34% higher at $32.67 a barrel.
Nervous Price Watchers Are Itching To Sell
There is just too darn much stimulation in today's investing climate that is causing millions of investors to become distracted from their investing plans. Financial news shows all day on CNBC and Bloomberg News, to name a couple, are constantly touting this investment over that. Opinion changes daily, causing investors to whipsaw from the latest hottest idea to the next hottest idea. Sometimes, the same pundits change their minds over the course of the same day and cause utter confusion for investors.
What's hot one minute is cold the next. The Internet, for all its exciting informational and educational qualities, contributes to investors' constant fixation with prices in the markets. Back in the day, we were privy to price changes maybe once a day, reading about the previous day's closing prices in our morning newspapers. This slow speed of delivery did not result in the rash thinking and selling like we see today as each price blip is displayed in real time on our home computers (not to mention the work computers of investors who are glued to the market action all day instead of doing their work).
Shortsightedness Leads To Poor, Impulsive Decisions
Because the world of information has been so compressed and sped up, instead of using this to their advantage, millions of folks' eyeballs glaze over and allow themselves to be swayed by the volatility in the marketplace. While they are experiencing intense fear as they view their assets melting away, I am sensing the opportunity to buy high-quality companies at cheaper prices which means higher yield and income for me. I see a sale, plain and simple.
Changing Focus From Price To Income Changes Everything
If we are long-term investors, then we must come to realize that the dividend component return of our portfolios, over time, come to represent fully four times the return received from capital appreciation (price change). So, if we don't need to touch our capital for ten years or longer and we are savers and investors, then our price-focused model could use some course correction at this point.
Come The Next Crash, Will You Stop Using Your Phone Or Electricity?
This question is largely rhetorical as it answers itself. No matter what happens in the world, be it a world war, economic crisis, financial crisis, epidemic or crash in the stock markets, you'll be continuing to use your phone and electricity in your home, on the go and at work and play.
You'll be talking about the latest news and developments to your friends, relatives and co-workers on your phone just as much, if not more, when a disaster strikes. You'll be downloading just as much data on your phone to keep up with the latest developments. You'll be using even more data to download some music and T.V. shows and movies in an attempt to escape the bad news and chill for a while. Your texting will not decrease since you'll still need to keep in touch with little Johnny to make sure he's O.K. and to ask hubby to pick up some milk on the way home from work. Phone usage does not drop off in any economic environment. One could argue that in stressful times, usage picks up considerably.
So what does this portend for the bottom line of telecommunication companies? Fatter revenues, profits, and higher dividends shared with investors, as usual.
How about electricity use? Under any of the stressful scenarios already discussed, do you think the use of electricity diminishes to any appreciable extent? Not a chance. Utilities that provide electricity to homes and businesses continue to provide this necessity. We don't lightly walk away from our necessities of living, come hell or high water. The world simply does not go dark just because the economy is going through a rough patch. And let's not forget about all the new house formations that contribute to the growth of these utilities. The millennials among us are beginning to move out of mom and dad's basement into their own homes and apartments (new home sales continue to trend higher). New homes and apartments, once hooked up to the grid add to the national consumption of electricity, and little Johnny, now grown up, has his own electric bill to pay.
Here's a table of all the telecom and electric utilities that are components of the Fill-The-Gap Portfolio I manage exclusively here on Seeking Alpha, and also represented in the portfolio I manage exclusively for subscribers to my premium service, Retirement: One Dividend At A Time.
The Lights Don't Go Out And The Dial Tone Doesn't Go Dead
Instantly, one can see that the certainty investors derive from knowing that these companies continue to grow through all economic environments translates to stable and rising stock prices, regardless of what is transpiring in the volatility of the overall market, being expressed in the downtrend recently in the Dow Jones and S&P 500 indices.
The above table is a picture of capital preservation, appreciation, solid income production and income growth. Should an investor buy all six of these companies with equal amounts of investments, this group of telecoms and electric utilities will provide an average yield of 4.90%. Compare this yield to the current 10-year treasury yield at 1.83%, or the two year at around .8%, and it becomes apparent that an investor seeking stability and income can find it among companies like these with much better results.
Knowing that stable and growing business translates to stable and growing dividends, some investors gravitate to these types of companies. They understand that through thick and thin, they will produce the earnings necessary to nurture a culture of growing dividends.
It is this focus on a growing dividend stream that enables the income investor to stick with their plan. Seeing their income growing on a regular basis gives them the courage to stick to their conviction. Astute investors take it one step further. If prices of these stocks should cheapen due to general market or company-specific panic, they will buy more shares, in the certain knowledge that the new purchase will give them a higher yield and more income on the new investment.
If the investor seeks stability of price to bolster their plan, these are the types of stocks to consider in uncertain times like these.
If they need any additional encouragement to stick with the plan, they need to only take a look at the last column of the table above. This table shows the CAGR, or compounded annual growth rate, of the dividends on each of these equities. Drawn from the wonderful work of fellow Seeking Alpha colleague Robert Allan Schwartz, his website gives us the depth and understanding of the dividend growth rate that underpins these investment choices.
Shining Some Light On Con Edison
From Con Edison's corporate website:
For more than 180 years, Consolidated Edison, Inc. has served the world's most dynamic and demanding marketplace - metropolitan New York. (italics are mine)
Con Edison's principal business segments are Consolidated Edison Company of New York's regulated electric, gas and steam utility activities, Orange & Rockland Utilities' (O&R) regulated electric and gas utility activities, and Con Edison's competitive energy businesses.
Con Edison of New York provides electric service to approximately 3.3 million customers and gas service to approximately 1.1 million customers in New York City and Westchester County. The company also provides steam service in parts of Manhattan. O&R provides electric service to 301,000 customers in southeastern New York and adjacent areas of northern New Jersey and eastern Pennsylvania and gas service to 130,000 customers in southeastern New York and adjacent areas of eastern Pennsylvania.
Con Edison's competitive energy businesses participate in segments of the electricity industry that are less comprehensively regulated than our regulated businesses. These segments include the operation of electric generation facilities, trading of electricity and fuel, sales of electricity to wholesale and retail customers, and sales of certain energy-related goods and services.
Con Edison Solutions sells electricity directly to delivery-service customers of utilities primarily in the Northeast and Mid-Atlantic regions and also offers energy-related services. CES also develops, constructs, owns and operates customer sited renewable energy projects.
Con Edison Development develops, constructs, owns and operates grid connected renewable energy infrastructure projects throughout the continental US. At the end of 2014, Con Edison Development had 446 MW of solar and wind projects in operation. Con Edison is the 6th largest owner and operator of solar PV in North America.
Con Edison Energy procures electric energy, fuel and capacity for Con Edison Solutions. It also sells energy and procures fuel for assets owned by, or leased from others.
As a result of our performance, we have been able to increase our dividend each of the past 42 years. Few companies can match that achievement. We remain committed to providing our shareholders a superior, low-risk, long-term total return.
The first sentence tells us that this is a company that's been around a good long while, 180 years. This is a stable company. It's going to be around for us when we want to continue counting on those dividend payments for our income in retirement.
The last sentence informs us why we can continue counting on those dividends. The company intends to continue sharing those reliable dividends with shareholders. Not only that, but also it has increased those dividends in each of the past 42 years, and it intends on doing more of the same for shareholders in the future.
Here is a dividend chart of Con Ed's dividend paying history for the past 10 years. It can be seen that although the CAGR over the last 10 years discussed above is only 1.12%, the dividends have been increasing at a faster rate over the last five years. In fact, on January 21, the company declared a 2 cent quarterly increase in the next dividend payable in March 2016, which represents a 3.08% increase from today's $.65 quarterly dividend.
Con Edison Dividend History
Con Edison's stock price has diverged markedly from the S&P 500 index, rising 3.1% in the past year as the S&P 500 has fallen 7.17%. Year to date, the company is up 11.5% while the S&P 500 is down 6.51%. This is quite a divergence.
S&P Compared To ED Year To Date
One-Year Performance Of ED Compared To S&P
Two-Year Performance Of ED Compared To S&P
While the S&P 500 index added about 10% in value in the past two years, Con Edison more than tripled that performance by adding over 35% in stock price appreciation.
This chart of Con Edison's dividend growth over the past 20 years demonstrates the quickening of that growth the past few years.
Con ED Dividend History
Stability And Growth
For those investors seeking stability in their portfolios during these uncertain times, they could do worse than owning a company as stable as Con Ed. Stability in price as well as growth in the dividend has been part of this company's history for over 42 years now.
Con Edison was selected as a component of the FTG Portfolio as well as the subscriber portfolio for these very reasons. It is these very types of stocks that add ballast to a portfolio during stormy seas. They help keep an investor focused on the income they continue to produce and provide stability in stock price as well. This helps to keep the investor from becoming spooked and selling out when the markets take a dive.
The FTG Portfolio
I began writing a series of articles on December 24, 2014, to demonstrate a real live construction and management of a portfolio dedicated to growing income to close a yawning gap that so many millions of seniors and near retirees face today.
The beginning article was entitled, "This Is Not Your Father's Retirement Plan." This project began with $411,600 in capital that was deployed in such a way that each of the portfolio constituents yielded approximately equal amounts of yearly income.
Having reduced our risk to portfolio income by spreading our income equally among many separate high-quality companies with long histories of paying and increasing their payouts, we built out the foundation further. Additional strength was derived from diversifying to several sectors to mitigate our risk.
The Fill-The-Gap Portfolio, or FTG, was born of the realization that the average American couple can expect to receive $28,800 in Social Security benefits that they worked their whole careers to earn. We also understand that a fairly comfortable retirement in most parts of the U.S. is going to cost us around $50,000.
If we simply subtract the smaller amount from the larger required amount, we come to see that this average couple is short a couple tens of thousands - $21,200 to be exact.
Where Has The FTG Portfolio Sought Income In Past Months?
I'm glad you asked. Readers of my series have been following the progress of my Fill-The-Gap Portfolio, which I have been demonstrating exclusively for readers of Seeking Alpha since the inception of the portfolio on December 24, 2014.
Its aim is to illustrate how an average retired couple receiving an average of $28,800 in combined Social Security can close the gap between that amount and a fairly comfortable $50,000 retirement income. If we add this $28,800 average from Social Security to the current $26,105.97 FTG Portfolio dividend income, we see that the current annual total of $54,906 comfortably surpasses that initial goal and continues to increase through growth of dividends and opportunistic reinvestment of those dividends.
Portfolio Construction And Management 101
I have recently launched my premium subscription service right here on Seeking Alpha. For those readers who have not yet joined, it's a service of active portfolio management that will help you build an exclusive dividend growth portfolio for your retirement. To learn more about my premium subscription service, please click this link:
This new portfolio began with a starting overall portfolio dividend yield of 5.77%. It is already giving us a current yield of 5.99%, just two months after launch in November.
The FTG Portfolio
Constructed beginning on 12/24/14, this portfolio now consists of 18 companies, including AT&T, Inc. (NYSE:T), Altria Group, Inc., (NYSE:MO), Consolidated Edison, Inc. (NYSE:ED), Verizon Communications, Inc. (NYSE:VZ), CenturyLink, Inc. (NYSE:CTL), Main Street Capital Corporation (NYSE:MAIN), Ares Capital Corporation (NASDAQ:ARCC), Reynolds American, Inc. (NYSE:RAI), Vector Group Ltd. (NYSE:VGR), EPR Properties (NYSE:EPR), Realty Income Corporation (NYSE:O), Sun Communities, Inc. (NYSE:SUI), Omega Healthcare Investors (NYSE:OHI), StoneMor Partners LP (NYSE:STON), W.P. Carey, Inc. (NYSE:WPC), Government Properties Income Trust (NYSE:GOV), The GEO Group (NYSE:GEO) and The RMR Group (NASDAQ:RMR).
Plan of Action-Portfolio Management
Our aim is to get the most bang for our bucks. We will look toward any further weakening in the markets as our developing opportunities to buy more income for the portfolio at cheaper prices, gaining higher yield along the way.
We are in no hurry here. We will follow our playbook just as we did with the recent W.P. Carey and Geo Group purchases. We'll pick our spots, and when those entry points arrive, we'll pounce.
The Fill-The-Gap Portfolio for 2016 presents a new beginning, an opportunity for retirees, near-retirees and new, younger millennial investors to start the process of making their transition to dividend growth investing in some of the safest, most predictable, long-paying, high-payout companies in America.
For younger millennial investors willing to be open to ideas to further their financial education, this portfolio represents a solid foundation. For them, and all pre-retirees and retirees, this model of portfolio construction is offered as a foundational way to build retirement income for the future that addresses inflation head on. The dividends in this portfolio will continue to grow in such a way that future income will not be degraded and decimated by inflation. On the contrary, purchasing power will be preserved, unlike what would befall an investor buying 0% T-bills today or negative interest rate T-bills next week as discussed in those articles I penned.
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If you found this article, the concept and investment results interesting and intriguing, I invite you to read the other articles in this series. Stay tuned for further articles that will introduce additional sectors and names to further diversify a portfolio for continued ballast and mitigation of risks to any one sector.
Should you be interested in reading any of my other articles detailing various strategies to enhance your returns on a dividend growth portfolio, you will find them here.
As always, I look forward to your comments, discussion and questions.
Please feel free to ask me anything by typing your question into the "Ask Me Anything" box.
Disclaimer: This article is intended to provide information to interested parties. As I have no knowledge of individual investor circumstances, goals, and/or portfolio concentration or diversification, readers are expected to complete their own due diligence before purchasing any stocks mentioned or recommended.
Disclosure: I am/we are long ARCC, CTL, EPR, GEO, GOV, MAIN, MO, ED, O, OHI, RAI, STON, SUI, T, VGR, VZ, WPC.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.